Payout Decisions Research Articles

The impact of corporate governance and firm-specific characteristics on dividend policy: an emerging market case

PurposeThe present study aims to investigate the impact of corporate governance proxies by ownership structure and firm-specific characteristics, i.e. firm size, leverage, growth opportunities, previous year dividend, firm risk, profitability, and liquidity on dividend behavior of the Pakistan Stock Exchange (PSX) listed firms.Design/methodology/approachFinal sample of the study consists of 140 PSX-listed firms. The study covers a period of six years, starting from 2015 to 2020. Dividend payout dummy, dividend payout ratio, and dividend yield were used to assess the dividend behavior of the sample firms. The appropriate regression procedures (logistic, probit, ordinary least square (OLS), and fixed effect regression) are used to test the study hypothesis. To check the robustness of the result, a system GMM estimation technique is also used in the present study.FindingsThe study reveals that institutional ownership, foreign ownership, and individual ownership have a significant positive whereas managerial ownership has a significant negative impact on the dividend decision of sample firms. Among firm-specific characteristics, it was found that liquidity, profitability, and the previous year's dividend were significantly positive, while growth opportunities were significantly inversely associated with dividend payout decisions of PSX-listed firms.Practical implicationsThis study sheds light on the relationship between dividend policy, ownership structure, and firm-specific factors in the context of an emerging market like Pakistan. The study's findings have important implications for managers, minority shareholders, lawmakers, and investors looking for guidance on the dividend policy of publicly-traded non-financial firms.Originality/valueThe literature lacks studies that together analyze the ownership characteristics and firm-specific variables on dividend decisions, particularly in the context of developing economies. The current study aims to fill this gap.

Impact of corporate governance and CEO remuneration on bank capitalization strategies and payout decision in income shocks period.

The purpose of this research is to explore corporate governance and CEO remuneration with banks capitalization strategies and payout policy within the Pakistani banking context. Data were obtained from the financial statements of scheduled banks listed on the Pakistan stock exchange from 2005 to 2020. The findings of the research study revealed that corporate governance mechanisms that promote the bank's shareholders' interests are linked to low capitalization strategies. The size of the board of directors has a significant impact on the capitalization of banks. Banks' capitalization techniques are also adversely correlated with effective board size. The shareholder benefits from low capitalization. Corporate governance is positively related with banking sector instability, as seen by this negative correlation. Bank capitalization strategies have a significant impact on CEO remuneration. In the event of an income shock, dividend payout is essential. Banking sector payout policies are negatively related with corporate governance. In the event of a negative income shock, financial institutions reduce dividends. As a result, it has been argued that effective corporate governance benefits shareholders by reducing capitalization tactics and limiting financial institutions' aggressive payouts.JEL classificationG21, G30, G32, G35.

Spillover Effect of Annual General Meeting on Dividend Payout in Family Businesses

The recent family business literature considers the heterogeneity of ownership and categorize them into lone founder owners and family owners. The distinct social behavior of both type of owners lead to different dividend payout decisions. This study provides novel evidence by examining the effect of lone founders and family owners on dividend payout decisions, and spill over effect of annual general meeting on this relationship. We employed 4567 firm year observations of the non-financial firms listed on Pakistan Stock exchange over the period 2006-2021 and used multivariate regression analysis to test the hypotheses. For robustness check, we employed generalized method of moments estimation and two stage least squares regression and confirmed the earlier obtained results. Our findings indicate that firms under lone founders’ ownership prefer long term growth strategies and therefore pay lower dividends whereas the family owners distribute higher dividend to increase family’s wealth. Moreover, we found that family owners schedule annual general meeting promptly as compared to the lone founders to distribute the dividend at the earliest. Overall, our results support the concept of organizational identity in lone founder ownership and family identity in family ownership.

Dividend payout decisions under uncertainty: the ownership influence in the early days of the COVID-19 pandemic in Finland

PurposeThis paper examines whether ownership type has a moderating influence on dividend payouts during the COVID-19 pandemic crisis with respect to changes in profits. Future uncertainties because of the pandemic will result in a perceived need for liquidity within the company, but retaining cash may be risky for shareholders who could look for less risky alternatives. The dividend payout strategy is thus even more closely related to the overall type concentration and strategy of the owners during the crisis.Design/methodology/approachThe effects are explored and tested on early data from 2019 to 2020 of Finnish companies using ANCOVA while controlling for profitability and sector variables.FindingsA significant effect on dividend payout during the COVID crisis was found when the companies are dominantly held by individual owners validating early suggestions on such an influence. Therefore, this study contributes further to the academic debates on the influence of ownership concentration in times of crises. This study lists certain sectors which experience diminished profits during such a crisis which pinpoints sector separation in future discussions.Research limitations/implicationsThis study explores early data from a specific context in the Nordic countries. However, it does so out of purpose as explained in the paper.Practical implicationsOwnership type and concentration matters when it comes to dividend payout decisions under uncertainty with regard to changes in profit. Investors need to accept these behavioural insights into their decisions.Originality/valueThis study examines the signalling effect of dividends by analysing how actual or anticipated change in profitability due to a crisis is reflected by owners and leads to dividend payout decisions under uncertainty.

Untying the role of board gender diversity in dividend policy of politically embedded Chinese firms

PurposeThis study aims to investigate the role of board gender diversity (BGD) in dividend payout decisions of politically embedded firms (PEFs) including government-linked firms (GLFs) and non-GLFs in comparison to non-PEFs from the perspective of an emerging market, China.Design/methodology/approachThe study uses the fixed-effect regression to examine the relationship between BGD and dividend payout decisions of PEFs including GLFs and non-GLFs in comparison to non-PEFs for a sample of Chinese publicly listed firms over the period 2010–2018.FindingsThe paper presents robust evidence that BGD is associated with higher dividend payments in PEFs than non-PEFs. Similarly, female directors on GLFs' boards are more likely to pay higher dividends than non-GLFs. Moreover, findings also reveal that the female directors' impact on dividend payout decisions is more pronounced in high corporate social responsibility (CSR) PEFs compared to low CSR peers, regardless of the nature of political ties.Research limitationsThe major limitation of this research that it is restricted to Chinese firms that operate under distinctive economic, social, and political environments. However, the study findings are generalizable to other emerging economies which have similar institutional settings and corporate environments with high government intervention like China.Practical implicationsThe findings will enable policymakers to design policies targeted at the inclusion of female directors on PEFs' boards to reduce information asymmetry and agency conflicts. However, considering the heterogeneity of female directors' role in dividend payout decisions of GLFs and non-GLFs, the policymakers should be cautious while establishing the female quota in these firms.Originality/valueThe role of BGD in dividend policy decisions of politically connected firms remained unexplored. This study is the first to unveil the role of female directors in dividend payout decisions of PEFs and non- PEFs. In addition, this research further contributes to the literature by exploring the BGD-dividend policy link in PEFs with high- and low-CSR engagements.

Influence of Real Earning Management on Subsequent Dividend Payout Decisions and Corporate Returns: A Case of Developing Economy

Real earning management (REM) enhances the control of managers on the financial reporting of firms. However, its influence on financial decisions in the coming years is not well documented, especially in developing countries. This study investigates the influence of three REM activities on subsequent years’ dividend payout decisions (DPDs) and annual corporate returns of firms listed on the Pakistan Stock Exchange (PSX). The study employed panel data from 2011 to 2020 of 120 large manufacturing firms to 1) measure the extent of REM activities and 2) investigate the impact on future financial decisions of dividends and reported returns. This study used multiple proxies of return for robustness. Consistent with empirical studies, the REM negatively impacts the following years’ returns. However, its effect on dividend payout policy is insignificant. This indicates that Pakistani firms are more concerned with a smooth dividend payout to investors than reporting coherent returns. The study provides significant evidence from a developing economy and has implications for investors, analysts, and policymakers.

Understanding Bank Payouts during the Crisis of 2007–2009

Abstract We study U.S. banks’ payout policy in 2007–2008. We benchmark these payouts against payouts before the crisis, measure stock price reactions to announcements of dividend changes, and analyze changes in the relation between payout growth and future performance. Further, we examine cross-sectional variation in banks’ payout policy to gauge the possible motives underlying banks’ payout decisions in 2007–2008. We do not find that banks that have a higher willingness to take risk or that have higher incentives to undertake asset substitution use their payout policy to engage in more wealth transfer compared to other banks. (JEL G21, G24, G28, G32, G35). Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Keterkaitan Antara Managerial ownership, Capital Structure dan Investment Decision Dalam Perspektif Convergence – Interest hypothesis

This study aims to analyze the effect of managerial ownership, capital structure, and investment decisions in the convergence of perspective –interest hypothesis. This type of research is quantitative analytic. The data analysis method used regression for panel model 2 and model 3, as well as the simultaneous Equation model for model 1. This study used a statistical regression coefficient test (t-test) for bivariable analysis, F test, and R2 test. The results of the interpretation of model 1 and model 2 (without outliers) are not normally distributed, there is no multicollinearity, there are no symptoms of heteroscedasticity and there is a positive autocorrelation. The results of the interpretation of model 3 (without outliers) are normally distributed, there is no multicollinearity, there are symptoms of heteroscedasticity and there a positive autocorrelation The result for the study can be concluded classical assumption test show that the three models have abnormal symptoms and heteroscedasticity. The researcher has removed the data outliers one by one in the three models and transformed data into the third model. We suggest adding different variables such as dividend payout decisions. As well as being able to will add a sampling period that more samples are studied and consider taking samples from other companies for next research.

Dividend payout strategies and bank survival likelihood: A cross-country analysis

In this cross-country study, we examine whether dividend payout decisions affect the survival likelihood of banks. Using unique international banking data from 11 countries from 2010 to 2019, we find that higher levels of cash dividend payouts increase a bank's survival likelihood, as paying dividends lowers agency problems and cost of debt and facilitates greater public monitoring. Our extended analysis shows an inverted U-shaped relation between large dividends and survival likelihood. At higher levels, payout is related to a safer position of banks in terms of default; however, at very high levels of dividends, when the levels of payouts exceed a threshold, such payout lowers the likelihood of survival. We additionally investigate the effect of the bank type to assess whether differential effects could be realised under the constrained dividend model of Islamic banks compared to the conventional banking model. Our results, interestingly, show that the positive effect of dividend payouts on bank survival is more pronounced in conventional than Islamic banks. This finding is explained by the dominant liquidity management challenges pertaining to the Islamic banking business model in which banks retain more cash and pay lower dividends. Our findings offer important insights and policy implications for regulators, bankers and a broad set of stakeholders engaging with both banking sectors.

Auditee’s payout policies: does audit quality matter?

PurposeThis study aims to explore whether an auditee’s audit quality influences its payout policies (i.e. each form of dividend payouts and stock repurchase payouts).Design/methodology/approachBased on a panel data of US public firms, from 2004 to 2018, and Tobit estimators, this study aims to examine whether auditees’ audit quality is related to their payouts and under which circumstances (from the standpoints of auditees’ information asymmetry, refinancing risk, corporate governance and financial constraints) the aforesaid associations are more pronounced.FindingsThe findings of this study imply that auditees’ audit quality is positively related to auditees’ payouts. Further examination suggests that this positive relationship is stronger for auditees with higher information asymmetry, lower financial constraints and refinancing risk and for those with weaker governance. Finally, this study documents that dividend payouts are more stable for auditees with high-quality audits than those with low-quality audits. The results support the view that auditees’ transparency (reflected in high-quality audits) could be a crucial driver and rationale for their payout policies and, ultimately, overall policies.Originality/valueBy combining two different research lines of audit quality and corporate payout policies, this paper adds to both literature, as it is a novel one to document the contributing function and impact of audit quality on auditee’s payout policies (tangible financial decisions and policies). The findings are significant considering that it documents high-quality audits affecting the auditees besides their financial reporting quality. This study also shows the moderating roles of the auditee’s information asymmetry, rollover risk, financial constraints and corporate governance in the relation between audit quality and an auditee’s payout decisions. Furthermore, the findings can help shareholders (aiding them in determining companies with high payout policies), regulators and policymakers who emphasize audit quality. The results indicate that policymakers’ and standard setters’ efforts fostering high-quality audits should be in conjunction with firm payout standards.

The Proposal of Corporate Payout Decisions’ Modelling

Decisions on a company’s profit sharing are the most important financial decisions for both the shareholders as a source of additional income and the company as the source of cash outflow. The net profit can be transferred to the shareholders in the form of dividends or stock repurchases. Due to the fact that for both, dividends and share repurchase, the source of payments is the net profit (either last year profit, or retained profit), it can be assumed that decisions regarding dividend payments and share repurchases are interdependent. Therefore, a very important and so far without an unequivocal solution is the problem of measuring the relationship between decisions on dividend payments and share repurchases (whether to pay out a company’s profit in one of the forms, in both forms or at all). Taking into consideration the possibility of interdependence of both forms of corporate payout policy as well as the fact that data describing payout policy are of panel nature and the relationships between the decisions and the determinants may be non-linear, two simultaneous equations second order panel binomial choice model with random specific effects, the parameters of which are estimated in the same way as in the two stage least squares, was suggested for modelling the payout policy. The modelling procedure was verified by the estimation of the model on a balanced panel of 153 companies listed on the Warsaw Stock Exchange over the period 2008–2016 (1,377 observations). The study results show that the proposed procedure enables the selection of appropriate factors determining the decisions on dividends and share repurchases and the assessment of the relationship between them. It takes into the consideration the panel nature of the data and the possibility of heterogeneity and removes the phenomenon of endogeneity in the model, thereby, filling an existing gap in the literature on corporate payout decisions.

Institutional Investor Heterogeneity and Corporate Response to the Covid‐19 Pandemic

We examine the role of institutional investors in determining firms’ decisions whether to reduce dividends and share buybacks during the Covid‐19 pandemic. Our simple model predicts that the probability of cuts in payouts is linked to the holdings and types of institutions. We link our model to the attention‐based theories of the firm. We posit that the highly proximate nature of the pandemic may encourage greater risk aversion in organizations. Consequently, the presence of institutions that actively engage with managers results in a reduction in shareholders’ payouts during the pandemic to enable firms to deal with increased uncertainty, while institutions that seek short‐term value releases reduce the probability of cuts. We test our hypotheses using novel hand‐collected data on shareholders’ payout cuts in the UK during the Covid‐19 lockdown. We find that in firms with larger institutional holdings, shareholders’ payouts are more likely to be reduced as a response to the pandemic. However, institutional heterogeneity matters as institutions with a view to improve firms’ long‐term growth are more likely to affect corporate payout decisions. In contrast, institutions that focus on regular income (e.g. pension funds) seem to resist cuts even in the aftermath of a severe exogenous shock like the Covid‐19 pandemic.

Impact of Financial Decisions on Firm Performance: Path Analysis Approach

This study intended to explore causal relationships between the corporate performance and financial decisions of the firms which are listed on the Pakistan stock exchange (PSX). This study has used Return on assets and Tobin's Q as the measures of accounting performance and market performance respectively. To effectively examine the causal structure of corporate financing, investment, dividend payout decisions, and the firm performance simultaneously this study has used path analysis approach. The sample comprises 292 non-financial firms which are listed on the Pakistan Stock Exchange (PSX). The findings clearly show that debt financing has positive effect on the investment and dividend has negative effect on the investment decisions. The debt financing and investment has a negative impact on corporate performance while dividend decisions has a positive impact on corporate performance. This study helps to understand the corporate decision making process of Pakistani firms. To the author's knowledge this is the first study attempted to check the application of path analysis in emerging economies to study the causal structure of corporate financial decisions and corporate performance.

Local Peer Influence on Corporate Payout Decisions

Local Peer Influence on Corporate Payout Decisions

Corporate social responsibility and dynamic liquidity management

We introduce choices on corporate social responsibility to financially constrained firms facing uncertainty from different time horizons. Implementing corporate goodness incurs monetary costs in exchange for long-run non-pecuniary benefits, such as higher secular growth and implicit insurance for being trustworthy. Generally, cash reserve positively predicts corporate virtue; in turn, higher corporate goodness strengthens the precautionary-saving motive for external financing and payout decisions. Less-constrained firms benefit from conducting corporate goodness, while their more-constrained peers enhance firm value by optimally prioritizing the short-term benefits instead since inefficient liquidation generates acute “fight or flight” syndrome. Moreover, we investigate various decisive factors behind corporate goodness optimality, such as the firm's prospects, financing costs, and transparency. Finally, it turns out that liquidity plays a vital role in the interaction between goodness-induced insurance and derivative hedging.

Cost management and corporate payout decisions

Cost management and corporate payout decisions

Impact of Elimination of Dividend Distribution Tax on Indian Corporate Firms Amid COVID Disruptions

Economic fallouts from COVID-19 have been unprecedented across all industries, with a handful of exceptions. The present study attempts to capture the impact of dividend distribution tax elimination, introduced through the Indian Finance Act 2020, on corporate dividend behavior in India. It explores the determinants of dividend payouts, changing payout decisions, dividend behavior of regular payers, and the prevalence of factors associated with changing payouts. Out of the top 1000 firms, based on their market capitalization at the Bombay Stock Exchange, 509 non-financial firms pursuing consistent dividend payments from 2015 to 2019 are analyzed. The study also examines the dividend behavior of regular payers exhibiting a stable or step-up payout from 2015 to 2019. COVID’s impact on the firm’s financial performance and sentiments seems to dominate, suppressing investors’ expectations of enhanced payouts associated with dividend distribution tax advantages, with considerable reductions in payouts and omissions shown by regular and irregular payers in 2020 and 2021 vis-à-vis the preceding years. The findings signify that the dividend payouts of sample firms are positively associated with the firms’ size, MBV ratio, and past dividends, and negatively allied with free cash flows and the EBITDA margin. Regular payers are observed to be more sensitive to past dividends. The study lends credence to the conservatism and prevalence of signaling and catering theories in the dividend behavior of Indian corporate firms.

A Nudge to Quit? The Effect of a Change in Pension Information on Annuitisation, Labour Supply and Retirement Choices Among Older Workers

Abstract We study the effects of two exogenous modifications in the Swedish pension system application form nudging individuals towards a fixed-term payout. Meanwhile, the set of available options and the default option—life annuity—were unchanged during the period under study. We examine the effects on individuals’ payout decisions and the spillover effects on labour supply and other pensions using a difference-in-difference framework and detailed administrative data on actual payout decisions and a wide range of individual-level outcomes. Each modification increased the demand for the nudged payout by around 30 percentage points. The first modification also induced individuals to work less.

Dividend payouts and catering to demands: Evidence from a dividend tax reform

Utilizing the 2012 dividend tax reform in China, this paper examines how firms make dividend payout decisions that cater to the controlling shareholders' demand, especially when controlling shareholders and outside minority shareholders have different dividend preferences. We find that firms increase dividend payouts when controlling shareholders demand higher dividends after the dividend tax reform. In particular, firms pay higher dividends when facing increased demand from controlling shareholders than when the demand is from minority investors. In addition, we find that firms that increase dividend payments due to the controlling shareholders' demand subsequently have more debt financing and poorer firm performance, suggesting that catering to the demands from controlling shareholders is subject to the Type II agency problem.

Board performance and its relation to dividend payout: evidence from Malaysia

PurposeTo examine the board of directors’ performance and if higher performance helps protect minority shareholders in an emerging capital market. Additionally, we determine if the different types of company ownership moderate the level of protection to minority shareholders.Design/methodology/approachThe study develops a measure of board performance with their compensation. And it tests its association with the dividend payout decision of 300 of the largest Malaysian public listed companies (referred to as PLCs) over the period 2008 to 2014.FindingsThe results find that higher board productivity in terms of return on capital employed is associated with higher dividend payout. Additionally, the study finds that the board performance measure interacts with race, ethnicity and gender of the board of directors and CEO duality to affect the dividend payout decision of Malaysian PLCs.Research limitations/implicationsIt is a single-country study of large Malaysian PLCs. And it uses only the governance mechanisms that have been shown in emerging capital markets to have the most significant effect on affecting the relationship between board performance and dividend payout.Practical implicationsThe findings show the importance of inclusivity and diversity in governing State-controlled firms in an emerging capital market.Originality/valueThe findings suggest improving corporate boards’ performance, protecting minority shareholders and contributing to the corporate governance literature. Notably, the study highlights boardroom diversity’s importance to enhance the boards of State-controlled firms’ performance.